Company Perspectives:

One of the nation's leading catalog retailers, Spiegel Catalog is the lifestyle resource for the working woman. Spiegel Catalog serves the living needs and wants of its customers by offering an extensive array of fashionable apparel and home furnishings.

Company History:

Spiegel, Inc. is a leading U.S. retailer of apparel, accessories, and home furnishings. Perhaps best known for its namesake Spiegel catalog, the company distributes numerous other catalogs under such names as Newport News and Eddie Bauer. The company also operates several specialty retail stores, including Spiegel outlet stores and Eddie Bauer, Inc. The latter sells men's and women's casual and sports apparel. The main target market for the apparel and home furnishings featured in Spiegel's catalogs and stores consists primarily of middle-class working women, ranging in age from 21 to 59. Spiegel, Inc. is 90 percent owned by members of Germany's Otto family, whose Otto-Versand GmbH is one of the largest catalog retailers in the world.

The Early Years

For the first 100 years of its history, Spiegel was primarily a family business. The company was founded in 1865 by Joseph Spiegel, the son of a German rabbi. After spending the final few months of the Civil War in a Confederate prison camp, Spiegel settled in Chicago, where his brother-in-law, Henry Liebenstein, ran a successful furniture business. With Liebenstein's assistance, Spiegel opened J. Spiegel and Company, a small home furnishings retail operation located on Wabash Avenue in Chicago's loop.

The business was quite successful in its early years. In 1871, however, the Great Chicago Fire destroyed most of the area's business district, including the Spiegel store. After the fire, Spiegel and a partner named Jacob Cahn rebuilt the business, and by 1874 the company was prospering again under the leadership of the two men. Cahn retired from the business in 1879, at which time the company was growing impressively. In 1885 Spiegel began running regular advertisements in several Chicago newspapers, and the following year the company moved to a larger building on State Street. Spiegel's two oldest sons, Modie and Sidney, were brought into the business during this time.

Spiegel issued its first catalogs in 1888. The catalogs were made available to potential customers who lived outside the city. Because a mail order system did not yet exist, the catalogs served instead to lure people into the downtown store. By 1892, however, business had taken a turn for the worse, as many customers were slow to pay for their purchases. With debts mounting, the company went bankrupt. At Modie Spiegel's urging, the company reinvented itself as Spiegel House Furnishings Company of Chicago in 1893. The principal difference was that the new company, like many others in the furniture business, sold on credit. The decision to offer installment plans, and the timing of the decision, made possible Spiegel's remarkable expansion over the next several decades.

Expansion in the Early 1900s

The new Spiegel was an instant hit, and the first branch store was opened on Chicago's South Side in 1898. Another South Side branch went into operation three years later. The company's slogan--"We Trust the People!"--reflected its emphasis on credit merchandising. In 1903 Joseph Spiegel's third son, Arthur, entered the business with a plan to develop mail order operations for Spiegel. After a couple years of lobbying, Arthur convinced the company hierarchy to open a mail order department, and in 1905 Spiegel became the first company to offer credit through the mail. The new service was reflected by the addition of a word to the company motto, which began to read: "We Trust the People--Everywhere!" The response was phenomenal, and soon a huge, previously untapped base of customers was ordering from Spiegel's mail order catalog.

In 1906 Spiegel's mail order sales were nearly $1 million, far exceeding anyone's expectations. To handle the overwhelming success of the mail order operation, a new company--Spiegel, May, Stern and Company--was formed, allowing the Spiegel House Furnishings Company to devote its limited resources to conventional retailing, rather than assume the debts associated with building up the mail order segment. Arthur was named president of the new company.

Spiegel then began to diversify its line of products, offering apparel for the first time in 1912. After a couple of unsuccessful partnerships with independent clothing manufacturers, Spiegel, May, Stern and Company began offering its own line of women's apparel. The "Martha Lane Adams" line--named after its fictional designer--was so successful that it quickly became a wholly owned subsidiary of Spiegel, May, Stern, and Company and earned its own catalog. Martha Lane Adams' sales grew to nearly $2 million by 1916. That same year, Arthur Spiegel died of pneumonia at the young age of 32.

Spiegel's next marketing breakthrough came in 1926, when company executive Ed Swikard introduced a promotional idea involving Congoleum floor covering. Swikard engineered a mailing to more than nine million residences, offering a pre-cut Congoleum package at a low cost. The response was again overwhelming, and company sales reached a record $16 million for the year, with a net profit of $4 million. In 1928 Spiegel, May, Stern and Company went public, although the Spiegel family retained a controlling interest. The following year, just as the Great Depression was setting in, the Spiegels began gradually liquidating their retail furniture business. By 1932 the last Spiegel furniture store in Chicago closed its doors.

Post-Depression Ups and Downs

After experiencing considerable economic losses in the early years of the Depression, Spiegel entered a period of terrific growth and profits beginning in 1933. During this time, M.J. Spiegel, son of Modie, took over the leadership of the company. Spurred by a remarkably liberal credit policy ("No Charge for Credit"), the company's sales rose from $7.1 million in 1932 to more than $56 million by 1937. Furthermore, a $300,000 net loss was transformed into $2.5 million in profits. The strategy behind this growth involved the aggressive marketing of easy credit as the company's most important commodity. When sales began to level off in 1938, Spiegel reacted by shifting its attention to consumers in a higher income bracket. The company began adding dozens of brand names with national reputations to its catalog. The new approach was referred to as the "quality concept," and it brought success.

The onset of World War II, however, was disastrous for Spiegel. Because so much manufacturing had been shifted to wartime production, many of the products that were popular catalog items were no longer available in large quantities. Moreover, a shortage of labor affected the company's operations, and when buying on credit was officially discouraged by the U.S. government, Spiegel management had to discard its "No Charge for Credit" policy. In 1942 and 1943 combined, the company lost $3.8 million. To reverse this trend, Spiegel began to open retail outlets once again in 1944, hoping to mimic the success of its larger competitors, Sears, Roebuck & Co. and Montgomery Ward. That year, Spiegel acquired 46 Sally dress shops in Illinois. Several other chains were purchased over the next few years, and by 1948 Spiegel was operating 168 retail stores featuring a wide range of merchandise, including clothing, furniture, and auto supplies.

After an initial success in retail, the costs of retail operations began to outweigh the benefits. By the mid-1950s, Spiegel was again concentrating on its former mainstay, mail order sales on credit. Although nearly all of the company's retail outlets were sold off by 1954, several catalog shopping centers were retained so that customers could ask questions and place orders with company representatives. The following year, Spiegel unveiled its Budget Power Plan, a liberal policy under which customers were offered a line of credit sometimes as high as $1,000, with very low monthly payments. The idea was to add as many names as possible to the Spiegel customer list. The company also began to include a widening range of products in its catalogs; by 1960 Spiegel was even shipping pets. By that time, sales were considerably more than $200 million and nearly two million people had Spiegel credit accounts.

The 1960s and 1970s

In 1965, after a century of operation as a family business, Spiegel was purchased by Beneficial Finance Company. Spiegel stockholders received shares of Beneficial stock, and Spiegel became a wholly owned subsidiary. During the early 1970s, several charges were leveled against Spiegel by the Federal Trade Commission (FTC) regarding some of the company's marketing tactics. In 1971, for example, the FTC accused Spiegel of failing to adequately disclose credit terms in some of its statements and catalog ads. The company also was cited for its handling of credit life insurance policies, as well as for offering free home trials without informing customers that credit approval was required before a product would be shipped. Moreover, in 1974, the FTC charged that Spiegel's debt collection policies treated customers unfairly. Most of the complaints brought by FTC during this period were settled by minor changes in company practices, and serious action by the government was avoided for the most part.

Rising interest rates in the mid-1970s made financing credit accounts costly. Also during that time, Spiegel began to feel the pressure of competition from discount stores such as Kmart, which were rapidly establishing a national presence. In 1976, to help turn the company around, Beneficial hired Henry "Hank" Johnson, a veteran of the mail order operations of Montgomery Ward and Avon. One of Johnson's first moves was to streamline company management. Dozens of executives were let go, and overall employment was cut in half over the next five years, from 7,000 in 1976 to 3,500 in 1981. Johnson also closed Spiegel's remaining catalog stores.

Perhaps more important, Johnson sought to change Spiegel's image to that of a "fine department store in print." Accordingly, the Spiegel catalog was completely revamped; low-budget items were replaced by upscale apparel and accessories for career women. Merchandise bearing designer labels began appearing in 1980, when the company introduced a line of Gloria Vanderbilt products.

A New Focus in the 1980s

Spiegel soon became a trendsetter in the catalog business, which was booming as a whole during the early 1980s. The company's sales grew at an impressive pace of 25 to 30 percent a year. Although Spiegel still ranked fourth in catalog sales during this time--trailing Sears, J.C. Penney, and Montgomery Ward--the company's moves were being followed closely by its larger competitors.

In 1982 Beneficial sold Spiegel to Otto-Versand GmbH, a huge, private West German company prominent in catalog sales. Between 1982 and 1983, Spiegel's revenue shot from $394 million to $513 million, and the company's pre-tax profits more than doubled, reaching $22.5 million in 1983. The following year, control of Spiegel was transferred from Otto-Versand itself to members of its controlling family, the Ottos. Under its new ownership, Spiegel's transformation into an outlet for higher-end products continued.

In 1984 Spiegel began distributing specialty catalogs in addition to its four primary catalogs; 25 of these specialty catalogs were in circulation by 1986, featuring Italian imports, plus-sized clothing, and other specialty items. That year, Spiegel mailed a total of 130 million catalogs, at a cost of $100 million, and company sales surpassed the $1 billion mark for the first time. Also during this time, a new president and CEO, John Shea, was named.

In 1987 six million shares of nonvoting stock was sold to the public, marking the first time since 1965 that Spiegel was not completely privately held. The following year, Spiegel acquired Eddie Bauer, Inc., a retail chain specializing in sportswear and outdoor equipment. Eddie Bauer, which also maintained a catalog operation, had annual sales of $260 million. In the first year following the acquisition, the chain was expanded from 60 to 99 stores.

By 1989 Spiegel had become the number three catalog retailer in the United States, with a total circulation of about 200 million catalogs, including 60 different specialty catalogs, and an active customer base of five million.

New Additions in the Early 1990s

In 1990 Spiegel acquired First Consumers National Bank, which began issuing credit cards and statements to Spiegel and Eddie Bauer customers. That year, the company enhanced its image as the premier catalog for career women through an advertising campaign that featured actress Candice Bergen, who portrayed a career woman on the situation comedy "Murphy Brown." The campaign also featured a specialty catalog promoted by Bergen, emphasizing the inconvenience of department store shopping and the relative ease of shopping by catalog.

The company also began to expand its retail outlet operations based on lines from its catalogs. Spiegel stores included For You From Spiegel, which offered large-sized women's apparel, and Crayola Kids, providing a line of children's apparel first launched in 1991. In spite of these innovations, the company's growth stagnated because of national economic recession, and earnings declined sharply in 1991. Slight gains were realized the following year as Spiegel's revenue topped $2 billion. Eddie Bauer performed particularly well, having grown to 265 stores.

In August 1993 Spiegel announced its purchase of New Hampton, Inc., a catalog company specializing in moderately priced women's clothing. Later that year, Spiegel unveiled a new specialty catalog, E Style, featuring a clothing line aimed at African-American women. E Style represented a partnership between Spiegel and Ebony magazine that was formed as a means of targeting an untapped market of Spiegel consumers while also offering African-American women a clothing line more suited to their tastes. That same year, Sears discontinued its Big Book catalog sales operation and Spiegel and other specialty catalog retailers scurried to pick up the leftovers and increase their own share of the market.

Spiegel reported total revenues of $2.6 billion in 1993. Sales at Eddie Bauer stores reached $1 billion that year, bolstered by 30 new outlets that had opened. Between Spiegel and Eddie Bauer, 81 different catalogs, with a total circulation of more than 313 million, were distributed in 1993. The company's specialty retail stores also performed well in 1993, generating $840 million in sales.

Innovations in the Mid-1990s

In 1994 Spiegel formed a joint venture with Time Warner Entertainment to create two home shopping services for cable television. One of the services was named "Catalog 1," and was planned as a one-channel showcase for a roster of numerous upscale catalog retailers, each of which would sell its goods using innovative entertainment-style shows. Participants in Catalog 1 in 1994 were The Bombay Company, Crate & Barrel, Eddie Bauer, The Nature Company, Neiman Marcus, The Sharper Image, Spiegel, Viewer's Edge, and Williams Sonoma. The channel was tested in five markets that year: Rochester, New York; Milwaukee, Wisconsin; Nashua, New Hampshire; Columbus, Ohio; and Pittsburgh, Pennsylvania.

Spiegel also teamed up with Lillian Vernon, Lands' End, and other catalogers in 1994 to create a computerized CD-ROM catalog. The company also formed a partnership with MCI Communications Corporation that was aimed at increasing both companies' customer bases. MCI began offering a $35 Spiegel gift certificate to any customer who changed his or her long distance telephone service to MCI. MCI also offered an additional $20 certificate to any customer who remained an MCI user for at least six months. Around this time, Spiegel also seriously began considering an entrance into the electronic shopping market through an online service such as America Online (AOL).

In 1995 Spiegel did just that--but at the expense of its year-old Catalog 1 venture. By this time, Catalog 1 had begun airing in three more test markets, raising its total presence to eight cities. Time Warner and Spiegel were beginning to decide, however, that there was greater potential gain in launching a web site for Catalog 1 and capitalizing on the increasing popularity of the Internet. Therefore, they scaled back their cable television operation and began working on a home page through Time Warner's popular Pathfinder site.

Spiegel also initiated an entrance into the Canadian market in 1995 and planned to distribute its catalog there by the spring of 1996. Previous strong Eddie Bauer business in Canada aided the company's decision to move in on a larger scale, as did the company's good distribution agreements in Canada. Meanwhile, Eddie Bauer was doing extremely well in Japan, where the company had placed numerous retail stores throughout the previous few years.

The year 1996 marked the most profitable year in Eddie Bauer's history up to that point, and Spiegel's revenues benefited. Eddie Bauer's merchandise was so popular that year, in fact, that the company suffered through many delays in shipping and out-of-stock merchandise occurrences that were direct results of increased consumer demand. Eddie Bauer also made headlines in 1996 when it introduced "Balance Day" to its employees, which was an extra day off per year to do anything they wanted. The addition demonstrated the company's commitment to providing innovative benefits to its workers, and employees began referring to it as "call in well day." The company also made an effort to find ways to offer its single workers benefits that were equal to those offered to its workers with families.

The End of the Century and Beyond

Spiegel achieved $3.06 billion in 1997 revenue, with approximately $1.8 billion of that stemming from its Eddie Bauer operations. Regardless of Eddie Bauer's huge contribution to its parent company, however, the subsidiary had a very rough year. Following the immense demand for its products in 1996, the company mistakenly overproduced and overstocked in 1997. In addition, the new Eddie Bauer merchandise offerings did not hit home with consumers; thus the company was left with too much stock and no means of selling it all. In the August 17, 1998 issue of the Puget Sound Business Journal, Eddie Bauer's president and CEO, Rick Fersch, commented on the company's problems: "We were overplanned, overstocked, overstyled, overcolored--and it was overwarm (last winter) and that meant trouble." The company began formulating plans to turn things around in 1998.

The year 1998, however, brought with it additional challenges for the Eddie Bauer enterprise and, subsequently, for Bauer's parent company. Warmer than usual winter weather, brought about by a highly publicized weather phenomenon known as "El Nino," once again hurt Bauer's sales figures. Spiegel's overall revenues for the year dropped to $2.94 billion as a result.

Spiegel set out to halt its downward spiral and achieve profitability again. The company redesigned its Spiegel catalog, which had become something of an amalgam of differing--and often conflicting--items and images. The company created a catalog solely to target the working woman and organized its main catalog so as not to place $1,000 designer outfits adjacent to $20 casual shirts, for example. Eddie Bauer also launched efforts to get itself back on track.

By the end of the year, Spiegel announced that its efforts had been fruitful and that the company had achieved earnings once again. Although its revenue dipped during 1998, the company inked a profit and achieved positive cash flow, according to a fiscal year-end document released by Spiegel in early 1999. Eddie Bauer's performance was again disappointing during the year, but Spiegel's other lesser-known subsidiary catalog, Newport News, posted solid results. Late in the year, rumors surfaced that the company's positive results had led to numerous unsolicited purchase offers, including one from Arizona-based IG Holdings.

As the new millennium approached, Spiegel had many obstacles to overcome but was headed in the right direction. Having spent many decades in the shadow of companies such as Sears, Roebuck & Co. and Montgomery Ward, Spiegel had come to be regarded as a leader in the catalog shopping industry by the 1990s. Relying on its past proven ability to adapt to changes in customer tastes and trends in competition, the company was attempting to maintain this status.